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VAT: Understanding the Origin, Journey, Issues

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By Joseph Chibueze, Abuja

But for the intervention of the Appeal Court which ordered the warring parties to maintain status quo, the Rivers and Lagos state governments would have by now be collecting value added tax (VAT) in their states.

However, that order by the court is only postponing the dooms day for

the Federal Inland Revenue Service (FIRS) which had earlier lost two court cases as it tries to maintain control over the collection of VAT across the country.

As at the time of filing this report more states including Benue, Akwa

Ibom, Ogun and Edo are already dusting their papers preparatory to

enacting their own value added tax laws.

It all started when the Rivers State government approached a Federal

High Court in Port Harcourt asking the court to determine if it was

constitutional for federal government through FIRS to be collecting

VAT in the state.

Based on the prayers of Rivers State, the presiding judge, Justice

Stephen Pam declared that the Federal Inland Revenue Service (FIRS)

“has no constitutional authority to enforce and administer taxes not

expressly stipulated under Items 58 and 59, Part I, Second Schedule to

the 1999 Constitution of the Federal Republic of Nigeria.”

Following that court decision, Rivers State House of Assembly passed a

bill to enact the State Value Added Tax (VAT) Law No. 4 of 2021. The

state governor, Mr. Nyesom Wike signed it into law on August 20, to

end the authority of the FIRS to administer, collect and enforce the

Value Added Tax Act, 2007 in Rivers State.

That singular act by the Rivers State Governor has also motivated

Lagos State government to enact and sign its own value added tax (VAT)

law.

The major argument is that there is gross injustice in the

distribution of VAT proceeds by the federal government.

According to Rivers State Governor, Nyesom Wike, in the month of June

2021, over N15 billion was collected as VAT from the state, but its

share of it was a little over N4 billion whereas a state like Kano

which within the same month generated N2.8 billion, got exactly the

same amount as its own share of VAT proceeds.

On several occasions, people have argued that it was wrong for states

that prohibit the consumption of some goods to share in the VAT

revenue accruing from the same goods they have prohibited.

On August 24, 1993, precisely three days to the end of his regime, the

Federal Military Government under Gen. Ibrahim Babangida (rtd)

promulgated the Value Added Tax Decree No. 102 of 1993. But the decree

did not become effective until December 1, 1993 under the late Gen. Sani Abacha.

At the time of its promulgation, the Babangida regime recognised that the VAT enforcement authority lied solely with the federating units.

But the regime, by fiat, designated the FIRS as the enforcement authority on the grounds that the federating units lacked the capacity to collect VAT within their defined jurisdictions.

With the advent of the 1999 Constitution, consistent with Section 315 of the Constitution, all the decrees, which fall directly within the purview of the federal government, became the Acts of the National Assembly.

In specific terms, the section states: “Subject to the provisions of this Constitution, an existing law shall have effect with such modifications as may be necessary to bring it into conformity with the provisions of this Constitution and shall be deemed to be an Act of the National Assembly to the extent that it is a law with respect to any matter on which the National Assembly is empowered by this Constitution to make laws …”

On this ground, the Value Added Tax Decree No. 102 of 1993 became Value Added Tax Act, 1993, retaining five per cent as the chargeable rate in 1996 under the Federal Military Government.

Under the Obasanjo administration, however, the VAT Act, 1993 was amended twice, first in

2004 and also at the twilight of the administration in 2007.

Like Babangida, Obasanjo assented to the VAT Act, 2007 about four days to the expiration of his administration. Under the VAT Act, 2007, the chargeable rate of VAT was increased from five per cent to 10 per cent.

 However, the amendment stoked public disapproval, which compelled the late President Umaru Musa Yar’Adua’s administration to reverse it to five per cent on September 25, 2007.

The Federal High Court in Port Harcourt was to determine whether the Value Added Tax Decree No. 102 of 1993 be an Act of National Assembly?

Or should the National Assembly legislate on value added tax or consumption related taxes with emphasis on which level of government has the power to collect VAT within the ambit of the constitution.

Section 4 of the 1999 Constitution has defined the legislative powers of the National Assembly and States’ Houses of Assembly. Under Part I,

Second Schedule, the constitution recognises 68 items, on which the National Assembly can make laws for the purpose of good governance at the federal level.

Specifically, Items 58 and 59 on the Second Schedule further defined the taxing authority of the federal government. As these provisions suggest, the National Assembly cannot exercise its powers beyond legislating on matters on relating to stamp duties as shown on Item 58; taxation of incomes, profits and capital gains as indicated on

Item 59.

Also, under Part II, Second Schedule, the 1999 Constitution lists 30 items on which the state Houses of Assembly can legislate. Likewise, the National Assembly can as well legislate on any item or matter

under the Concurrent Legislative List. It is on these grounds that the

Federal High Court declared that there “is no constitutional provision

which grants the National Assembly power to make the VAT Act.”

Beyond this issue of who collects VAT and who does not, is the fact

that Nigeria is gradually inching towards true federalism, a state

many Nigerians have been yearning for.

The fact remains that time has come when politicians and particularly,

state governments should begin to stand up and challenge legislations

they do not feel comfortable with.

The debate over restructuring of the Nigerian federation to make it a

truly federal state has been persisted since the return to democratic

rule in 1999. The arguments had culminated in three different attempts

to restructure the country’s federal structure.

In 2005, Obasanjo convened the National Political Reforms Conference

in response to popular demands then. Also, former President Goodluck

Jonathan convoked National Conference in 2014 under the late Justice

Idris Kutigi to address imbalance and injustice that characterised the

federal system.

In keeping with its campaign promises, the ruling All Progressives

Congress (APC), in 2018, set up a Committee on True Federalism to

devolve more powers to the federating units. The committee was chaired

by the Kaduna State Governor, Nasir el-Rufai.

None of these attempts made any significant change in the country’s

governance structure. Since 1999 some states of the federation,

especially Lagos State and recently Rivers State, have successfully

challenged the constitutional powers of the federal government in

areas of conflicting interest.

With the current VAT imbroglio, and the recent court action instituted

by the 36 states of the federation through their Attorneys-General

asking the Supreme Court to compel the federal government to remit

funds generated from stamp duties into state accounts, it appears the

states are waking up to their responsibilities.

Commenting on the latest development in the match towards true

federalism, an economist and former Director General Lagos Chamber of

Commerce and Industry, Dr. Muda Yusuf, said all arms and levels of

government have a responsibility to uphold the constitution.

“This is what they have all sworn to do,” he said. “It is interesting

that the sub nationals are getting bolder and more assertive.  We are

beginning to see some flavour of federalism in governance.  It is a

good development.”

The Yoruba socio-cultural group, Afenifere, in a statement by its

National Publicity Secretary, Jare Ajayi, noted that the rulings by

Justice Stephen Dalyop Pam of the Federal High Court, Port Harcourt on

August 9 and on September 6, have earned the judiciary in Nigeria

respect as an institution that is not only capable of ensuring justice

but is actually working on deepening federalism in the country.

The group urged state governments to use the opportunity provided by

the landmark judgments on VAT to explore other areas that the

Constitution empowered them to assert themselves as federalists.

“In other words, they should step up actions that will liberate the

states from the stronghold of the federal government that has turned

Nigeria into a Unitary State – in contradistinction to the federal

spirit prescribes by the Constitution,” the statement said.

“They should rest assured of Afenifere support as they give vent to

power devolution and entrenchment of true federalism in Nigeria.

“Areas in which the states need to assert themselves include

agriculture, health, education, electricity, physical planning, title

registration, registration and production of vehicle number plates and

casino licensing etc as Lagos State Government did in the past.

For President of the Institute of Chartered Secretaries and

Administrators of Nigeria (ICSAN), Gbenga Owokalade, “It is beyond the

fact of winning a court case. It is a function of what is the import

of that judgement on the Nigerian nation. Several times people have

talked about physical federalism and all of those things and there

have been arguments here and there but the judgement is speaking to

the heart of some of these issues. Why will you collect resources from

an area and that area does not enjoy the bulk of that thing and then

you share out? The states need to sustain the push towards true

federalism.”

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Federation Account Garners N7trn Revenue in Six Months – RMAFC

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By Tony Obiechina, Abuja

Revenue Mobilization Allocation and Fiscal Commission (RMAFC) yesterday disclosed that a total sum of N7.31 trillion accrued to the Federation Account between July and Dec. 2023.This was captured in the monthly report to the Federation Account Allocation Committee (FAAC) by the Central Bank of Nigeria (CBN) under the caption “CBN Federation Account Component Statement”.

This amount is higher than the sum of N5.
244 trillion realised in the first half of year 2023, according to a statement signed by the RMAFC Chairman, Mr. Mohammed Bello Shehu and made available to the media in Abuja.The chairman disclosed that out of the total gross revenue inflows into the Federation Account, the sum of N1,692 trillion was transferred to the Exchange Gain Differential Account, thus leaving a balance of N5.
475 billion for distribution.He added that from the amount stated above, the sum of N3.26 trillion was deducted as approved statutory deductions by the OAGF, leaving a net balance of N2.2 trillion for distribution to the three tiers of government within the period under review.The chairman explained that out of the N3.267 trillion statutory deduction indicated above, N2.251 trillion was transferred to the Non-Oil Excess Account as savings, thus leaving a net statutory deduction of N1.016 trillion with further augmentations for sharing among the three tiers of government received from some “reserve accounts.”The statement added that within the period under review, the net sum of N4 trillion was shared with the three tiers of government, an amount higher than the total sum of N3.06 trillion.In terms of percentages, the chairman stressed that “the statutory deduction in the second half of the year constituted 44.12 percent of the total gross inflow into the Federation Account in the six-month period, which was higher than the first half deductions of 42.31 percent (inclusive of transfer to the Non-Oil Excess Account).”On remittances by Revenue Generating Agencies (RGAs), the RMAFC chairman disclosed that out of the total gross revenue inflows into the Federation Account, the Nigerian National Petroleum Company Limited (NNPCL) remitted N874 64 billion in the second half of the year as against the zero-remittance made in the first half of the year.Similarly, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) remitted the sum of N1.56 trillion while the Federal Inland Revenue Service (FIRS) remitted N3.65 trillion

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PDP NEC Meeting Ends with Damagum as Acting Chairman

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By Johnson Eyiangho, Abuja

Peoples Democratic Party (PDP) 98th National Executive Committee (NEC) meeting yesterday ended without a word on the much talked-about replacement of the party’s Acting National Chairman, Amb. Iliya Damagum, an indication that he will continue to function in that position.

In an interview with newsmen after the meeting, the PDP spokesman, Hon.
Debo Ologunagba said for now, the party is focusing on issues of reconciliation and its stability, adding that the issue of the Acting National Chairmanship had been “deferred to the next NEC meeting, which is tentatively scheduled for August 15, 2024″.
Also speaking, the Governor of Bauchi State and Chairman of the PDP Governors’ Forum, Bala Mohammed said the party is united as there was no dissension and rancour.
In his words, “It was planned that the party would have an implosion. PDP is more than that. We have gone beyond all that. This party is united, guided by experience and constitutionality.”There were a lot of permutations and mischievous thinking outside there. But we looked at all the issues and we worked along our guidelines and constitution.“There is no problem or dissension and problem among members,” Mohammed said.The well attended NEC meeting was held amid tight security as police and personnel of the Department of State Services (DSS) condoned off roads leading to the PDP Secretariat, Abuja and diverted vehicular traffic.It will be recalled that the PDP National Working Committee (NWC) had passed a vote of confidence on Damagum during its meeting on Tuesday.A communique issued at the end of the three hours meeting commended all the organs of the party for their collective resilience, steadfastness and commitment towards the unity, stability and sustenance the party despite daunting challenges.The communique commended the efforts of the NWC in its effort towards rebranding the party and urged all party members to continue to work together for the success of the PDP for the benefit of Nigerians and sustenance of democracy in our country.

The document which was read by the PDP National Publicity Secretary, Ologunagba, however, expressed concern over what it described as the ill-implemented policies of the APC administration, leading to worsening insecurity, harrowing economic hardship, soaring unemployment rate, high cost of food and other necessities of life with pervading misery and despondency across the country.”NEC expresses serious apprehension over the spate of acts of terrorism and violence including the escalated cases of mindless killings, mass abduction of innocent Nigerians and marauding of communities in various parts of the country.”NEC condemns the insensitivity, nonchalance, incompetence and arrogance in failure of the APC administration which continues to conduct itself in a manner that shows that it has no iota of interest or commitment towards the wellbeing of Nigerians.”NEC also condemns the creeping totalitarianism and tendencies towards a One-Party State which is inimical to the peace, stability and corporate existence of our nation as well as the development of Democracy and good governance in the country,” it said.The communique demanded that President Bola Tinubu should urgently convene a special National Security Council meeting to proffer a holistic solution and measures to curb the disturbing insecurity with its attendant negative consequences on the nation.It also called on the president to “immediately rejig his Economic Team to bring in persons of proven integrity and competence without bias and vested interest to assist in repositioning the economy.”NEC further demands that the Federal Government should review all policies and programmes which are stifling the economy with suffocating effect on the lives of citizens; including the increase in price of fuel without cushioning measures, hike in electricity tariff, increased taxation and implementation of adverse fiscal policies,” the communique added.Present at the meeting were FCT Minister Nyesom Wike, former Vice President Atiku Abubakar and many other past and presently elected members of the PDP.

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CBN Reduces Banks’ Lending Rate to 50 Percent

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By Tony Obiechina, Abuja

Central Bank of Nigeria (CBN) yesterday announced a review of the loan-to-deposit ratio (LDR) for banks from 65 percent to 50 percent to align with the current monetary tightening.

LDR is used to assess a bank’s liquidity by comparing its total loans to its total deposits.

An increase in the loan-to-deposit ratio allows banks to expand their credits to businesses and individuals, however, a decline in LDR reduces their ability to loan customers from depositors’ funds.

CBN disclosed the increase in a circular titled “Re: Regulatory Measures to Improve Lending to the Sector of the Nigerian Economy”, signed by Adetona Adedeji, CBN Acting Director, Banking Supervision Department.

“Following a shift in the b  ank’s policy stance towards a more contractionary approach, it is imperative to review the loan-to-deposit ratio (LDR) policy to align with the current monetary tightening by the CBN,” the apex bank said.

“Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50%, in a similar proportion to the increase in the CRR rate for banks.

“All DMBs are required to maintain this level and are further advised that average daily figures shall continue to be applied to assess compliance.”At the last monetary policy committee (MPC) meeting on March 26, the CBN retained the CRR at 45 percent and the liquidity rate at 30 percent.

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